In all likelihood you’ve never heard of the Jones Act, nearly a century old now. At RealClearPolicy William Murray reviews its consequences today:
As the Mercatus study notes, there were 2,926 large ships in the U.S. commercial fleet in 1960, making up 16.9 percent of the world fleet. By 2016, that number had fallen to 169 ships, only 0.4 percent of the world fleet. U.S.-flagged ships carried 25 percent of U.S. international trade in 1955; by 2015, the share had dropped to 1 percent of total exports.
In any other industry, this sort of economic decline would have set off klaxons and drawn a major political response. In a 1999 study, the U.S. International Trade Commission estimated the Jones Act cost U.S. consumers $1.32 billion annually, its requirements being the equivalent of a 65 percent tariff on shipping services.
So where’s the outrage? Both the Interstate Highway System and cheaper aviation have made massive inroads into interstate commerce over the past century. Meanwhile, U.S. export and import businesses simply use cheaper foreign-flagged vessels. It also helps that U.S. airlines aren’t prevented from purchasing aircraft from Europe, Canada, or Brazil nor U.S. truckers from buying German or Japanese-made big rigs. While no one would propose banning airlines or truckers from relying on these foreign industries, this is precisely what the Jones Act does for the U.S. shipping industry.
There are thousands of such laws. Generally, they injure U. S. consumers to benefit a small number of Americans. Sometimes their adverse effects extend beyond that as with our cotton subsidies which hurt farmers in developing countries.
You can see why although I’m an advocate of free trade I chafe at the treaties that are being marketed as free trade these days. They aren’t free trade. They’re picking winners and losers.
Mr. Murray is either a charlatan or a fool. The Merchant Marine Act of 1920 (Jones Act) restricts domestic waterway travel. The only places that it has any affect on foreign ships is the three places he lists (Hawaii, Alaska, and Puerto Rico) plus Guam.
Foreign ships cannot deliver goods to these locations and continue on to another the US mainland or one of these four places. Even though it is in international waters, travel between Hawaii and the US mainland is considered domestic.
The beneficiaries would be the US airline, trucking, and railroad industries. According to his theory, applying the law to the airline industry would result in its disappearance. Interestingly, there is a law, and the airlines have not disappeared. I guess that Chinese substandard, dangerous, and fatal products only apply to sheetrock, dog food, and children’s toys.
(The free-market is working so well in the airlines industry that the free-traders are complaining about it. If I understand correctly, building a Walmart increases the number of upscale stores because the people who do not like Walmart will shop somewhere else. Got it.)
What the law was intended to stop or limit is the actual reason for the drop in US flagged ships. US ships are re-flagged under countries with more lenient civil and criminal laws, regulations, and tax code. At one time Liberia was a favorite, and the older folks will remember “a Liberian freighter ran-aground, sunk, caught on fire, hit another ship, etc.”.
Here is an idea: The US should no longer protect any non-US or non-US allied ships. (Allies require a treaty.) Client-states could be protected for a fee. Even better, sell weapons to the pirates.
I agree with most of Tasty’s comment. We don’t allow foreign airlines to fly domestic routes and most other countries have similar restrictions. The author asserts that the decline of the US shipping industry is due to this law, but he presents no evidence this is actually the case.
That said, there are things that could be changed and updated – parts of the law are certainly obsolete.
Regardless, I think the US needs to maintain a shipbuilding industrial base for strategic reasons, even if that means federal protection and subsidies.
Not sure I understand the vitriol guys.
The guy understands full well the players and effects, tasty. His point is that the protectionist Act has allowed the domestics to become sclerotic. It induced monopoly and monopoly practices like rates, inefficiency such as US only ships and labor, and becoming obsoleted by rail and air. Hence the reference to consumer costs. That’s classic protectionism in the long run.
As for Hawaii, Alaska and PR, he is just showing examples where foreign shippers cannot construct efficient routes that include those three places but terminate at US ports. That opens up an opportunity for rail and air, further diminishing the US shipers. I don’t know the history of the ACT, but if it was designed as protectionism and not security, they ultimately shot their dicks off. Classic.
As for the national security angle, his point is no terrorist problems in 16 years, and the difference between commercial and military ship construction. I remember the steel industry using national security as an argument against imports. It was bull; just a protectionist plea. And any US major making long goods eventually got disemboweled by US minis anyway.
His ultimate point is to eliminate the Act for the good of the industry, and ultimately the consumer. “Tough love.” Where is he being a charlatan or fool?
The decline in the number of flagged US ships has nothing to do with the law he cites. Ships were and are being flagged under countries with lax or nonexistent maritime laws, regulations, and taxes.
Liberia is not a shipping powerhouse because of its shipbuilding or maritime prowess.
Hawaii, Alaska, and Puerto Rico are not a few examples out of many. Including Guam, they are the only examples. The law is for travel from one domestic location to another.
He does not cite traffic on the Mississippi River because it is all domestic. Few sea-going ships can travel up the river to St. Louis, and therefore, he cannot use it as an example.
The US domestic airlines have a similar law. Foreign carriers cannot transport passengers on domestic routes. He does not use this because it does not support his argument, and instead, the opposite is true. The law is from 1920, but he somehow uses 1955 as his baseline.
Regarding national security, any country that cannot manufacture its own armaments and munitions has no security. No country has ever outsourced its way to greatness, and none ever will.
Let me help out the free-marketeers. The only natural free-markets are the anarcho kind. The free-market can only exist in an unnatural state. Without an external support structure, a market will reverting to its natural state – unfree.
The structures that allow a market to remain free cannot be built and maintained externally. These structure must support the free-market, and the free-market must support its enabling structures. Alone, a financial structure cannot build and maintain a free-market.
The global financial system has not and will not create a global free-market. The non-domestic enforcement entities have no real enforcement power, and therefore, they have little ability to impose the unnatural conditions required to maintain a global free-market.
Without an ever expanding US Empire, the US must be able to exist on its own. The US financial system and economy require manufacturing, shipping, steelmaking, raw material resources, etc. in order to survive.